Victoria housing affordability: Where rate rise pain is hitting hardest and how to beat it: PropTrack, DFA
Victoria’s hotspots for home loan interest rate pain have been revealed, but there are ways for families to beat the latest interest rate hike. See how much mortgages will rise in every suburb.
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Melbourne’s most financially stretched housing markets along the city’s fringes will need to find another $100 a month just to keep the roof over their head this summer.
The Reserve Bank raised the nation’s cash rate 0.25 percentage points on Tuesday, with all four of Australia’s biggest banks passing the hike on to home loan holders.
Mortgage brokers are already advising those fighting to keep their dream to buy a home alive that they’ll need to be Christmas Scrooges and limit gifts to chocolates or socks, while real estate agents have warned the “punch in the guts to confidence” could hit the state’s booming auction market as soon as next week.
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New PropTrack analysis shows that in Melbourne’s most affordable housing market, Melton, families will have to find an extra $70 a month to pay the mortgage for a typical home.
For those hoping to buy, the RBA’s 13th rate hike means new loans in the suburb now cost almost $700 more a month than they did at the start of May last year.
In West Footscray, the loan behind a median $940,000 home purchase will cost an extra $120 a month to cover, while someone buying a home in the suburb today will be forking out an extra $1270 a month than those who made a move before the rate hikes.
But it’s the battler ‘burb of Broadmeadows that could face the biggest hit, with respected financial analysts Standard and Poor’s estimating 6.85 per cent of home loans were already in arrears in the postcode as of June.
A typical mortgage-holding household there will need to find an extra $70 a month to keep paying their mortgage during the festive season.
YPA Glenroy auctioneer David Taylor said the Broadmeadows market mostly comprised investment properties, and there were signs landlords had been pushed too far with a rising prospect tenants in the area could face a difficult new year.
“The arrears might be coming from investors who are starting to struggle with their second mortgage,” Mr Taylor said.
“I have noticed this week there has been a bit of property coming to the market, people are trying to get in before the end of the year.”
However the agent added that buyer confidence had increased in recent months when the interest rate was paused, with a home last weekend selling $54,000 above reserve at an auction where seven bidders competed.
Standard and Poor’s mortgage arrears analyst Erin Kitson said they had observed an increasing trend of homeowners falling at least 30 days behind on their home loan payments along Melbourne’s fringes.
Ms Kitson said it was “intuitive” that those hit hardest would be recent first-home buyers, explaining the rise on the fringe, but added that this could also impact apartment markets closer to the city.
She said while the number of households in arrears was growing according to the Australian Residential Mortgage Backed Securities she tracked, they had so far only reached a normal historical level after sitting at the lowest levels in more than 30 years prior to the rate hikes commencing in 2022.
“But they tend to peak after Christmas in the early new year, when more financially stretched borrowers might go behind on their mortgage,” Ms Kitson said.
Digital Finance Analytics’ assessment of where Victorian mortgage holders have more money going out than in also found the city’s fringes had reached concerning levels.
This week’s rate hike will make things far worse.
The City of Casey has the highest number of people struggling in the state, and faces a $97 increase to the typical monthly mortgage payment.
The Hume municipality is the next most stressed and could see an $87.53 a month blow.
For those looking to buy, Mortgage Choice broker James Algar said this week’s 0.25 percentage point rate hike would cut about 5 per cent from what they could borrow – about $25,000 if you could previously have borrowed $500,000.
But some lenders would still honour finance pre-approval at October’s assessment rate, but only for applications made before November 16.
“A good broker will know who will do that as a lender,” Mr Algar said.
For those not quite ready to go this year, with expectations the next rate cut could now be in 2025, the broker advised a Christmas Scrooge approach.
“If you are thinking about trying to buy a house next year, tell the family and that it’s going to be nothing fancy this year for Christmas – just a box of chocolates or socks,” he said.
“Spending $1000 on Christmas presents could cost $10,000-$20,000 from your borrowing capacity.”
This is as a result of banks treating the festive spend as an outgoing expense and anticipating you may repeat it, suggesting you can service less debt than you could if that expense was just a once off.
PropTrack are forecasting more than 4000 auctions across this weekend and the following fortnight, with the rate hike coming at a terrible time for Melbourne’s housing market.
Barry Plant executive director Mike McCarthy said the rate rise might see auction clearance rates drop off in the lead up to Christmas.
“There is extra stock on the market at the moment … and heading into Christmas I think there’s likely to be continued strong stock levels which will mean more choice for buyers,” Mr McCarthy said.
“But the onus is on sellers to make sure they have the right strategy.
“The heat has come out of the market, you can still get a result if your strategy is right but I wouldn’t say we’d see as many 70-plus per cent clearance rates at the end of the year.”
RATE PAIN TIPS FOR:
Mortgage Holders:
– Call your broker or bank and ask for a lower rate, if you haven’t done so in a while you could drop several rate hikes;
– Look at refinancing to another lender for a better rate, most cash back deals are now gone – so ensure a lower rate will make up for the potential $1000 in fees needed to switch;
– Refinance with your current lender, or another lender, to increase your loan term – this will minimise payments today, but mean you pay more over the length of the new loan;
– If you can’t refinance talk to your lender’s hardship team, they may swap you to an interest-only loan if you can set an end point where you resume normal mortgage payments;
– Move back home with your parents, or rent an affordable apartment, and lease your home out until you can better manage the costs;
– The last resort is to sell before the bank steps in as you will likely sell for more this way, but will lose money on marketing your residence and purchasing a new one
Homebuyers:
– Be aware of lost borrowing power: a 0.25 per cent rate hike will reduce your maximum loan size by about 5 per cent — $25,000 if you could have borrowed $500,000 previously;
– Confirm if your lender will honour your pre-approval at the level you had in October, most will keep this active for 90 days but some might lower your maximum loan size;
– If you talk to a broker and put in an application before November 15 you might be able to secure loan pre-approval with a lender who will honour an October mortgage assessment rate;
– Cut up your credit card: a $10,000 limit could cost $50,000 from your borrowing power, which might nullify the last interest rate hike;
– If you have a modest HECS debt or small loans, paying them out could result in greater increases to your borrowing power than the loss to your deposit or savings;
– Those planning to buy a home next year should tell their loved ones this and explain this is why they are buying more affordable presents, like socks and chocolate, this year – a $1000 Christmas shopping bill could cost you up to $20,000 in borrowing capacity;
Source: Award-winning Mortgage Choice broker James Algar
Ray White Pascoe Vale principal Stefan Stella said past rate hikes had helped concentrate activity on Melbourne’s more-affordable northern suburbs, like Airport West, as first-home buyers in particular found they couldn’t borrow enough to buy in first-preference suburbs.
Mr Stella past experience suggested the latest announcement would impact the market for weeks to come.
“And I believe there could be another one in December and that will hit vendors who have just come onto the market now,” Mr Stella said.
“So it’s definitely a punch in the guts for confidence. It will shell-shock some people until they can realign how they go about life. And it’s at one of the most-expensive times of year.”
Mr Stella added that he had auctions scheduled where buyers who had been keen were already walking away to look at cheaper alternatives after Tuesday’s announcement.
HOW FAMILIES ARE COPING
A rate hike announcement has left the Gill family with a lot riding on the auction of their Airport West first home today.
Tom and wife Ellena have already committed to buy a new home that will upsize their mortgage after they spent past five years getting ahead of the mortgage on their current address.
“It hasn’t really settled in and it won’t until we get the keys and the debt at the start of next month,” Mr Gill said.
But with the family wanting a backyard for their 22-month-old son Patrick to run around in, they’re now looking for ways to beat the latest rate hike.
The first step would be selling their three-bedroom unit at 4/38-40 Highlands Ave at auction today.
The light and bright property kept them comfy for longer than expected as they started their journey to buy their next home before the first rate hike hit in May.
“We had four (rises) in a row and it lowered our borrowing range by more than six figures,” Mr Gill said.
They had hoped to make the unit available for rent, but as the probability of a 13th rate hike rose after they bought their next address they opted to put the home on the market.
And it was just in the nick of time.
Ray White Pascoe Vale principal Stefan Stella is selling their property and said the possibility of another rate hike as soon as December could “hit vendors who have just come onto the market now”.
With buyers this weekend still potentially able to access bigger budgets from lenders willing to honour existing home loan pre-approvals, those going under the hammer today could be getting the best of what remains of the year.
After Tuesday’s announcement, the Gills are also considering “tightening the belt” by eating out less and taking Patrick to the park instead of the zoo.
Mr Gill added that after consistently being outbid for their next home they had also kept their looming mortgage down by purchasing a property “that needs a fair bit of work” where the plumber could “roll up his sleeves”.
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